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IBM Q1 revenue falls to $18.16 bn, earnings down 16% at $1.75 bn

19 April 2017

International Business Machines Corp (IBM) reported a decline in its net income to $1.75 billion (or $1.85 per share) for the quarter ended 31 March 2017, a 16-per cent fall from $2.1 billion (or $2.09 per share) in the comparable quarter of the previous year.

Excluding outgoings, IBM earned $2.38 per share. The company also said it expects adjusted earnings of at least $13.80 per share for fiscal 2017, reiterating a forecast it gave on 19 January.

IBM reported revenue of $18.16 billion in the first quarter - a bigger-than-expected drop for the first time in five quarters - pulled down by weak demand in its technology services business. IBM's overall revenue decline increased to 2.8 per cent in the first quarter from 1.3 per cent in the fourth quarter of 2016.

With demand for its legacy hardware and software businesses stagnating, IBM has been shifting towards cloud-based services, security software, data analytics and artificial intelligence such as its supercomputer Watson, which once defeated human contestants in the quiz show Jeopardy.

These "strategic imperatives", spread across IBM's various businesses, continued to grow in the first quarter, but failed to offset weakness in the company's core operations, especially at the technology services and cloud platforms business.

IBM could not close some large deals in that business, which is its largest, while a couple of large clients took their operations in-house, chief financial officer Martin Schroeter said on a conference call.

Revenue in the technology services and cloud platforms business dropped 2.5 per cent to $8.2 billion. The business accounted for about 45 per cent of total revenue and with weak demand in its IT services business, the company's turnaround could take longer than expected.

The company said gross profit margin fell in all five of its reporting units. Overall adjusted gross margin stood at 44.5 per cent.

However, "strategic imperatives" revenue growth accelerated to 12 per cent in the first quarter from 11 per cent in the fourth quarter of the previous year.

Revenue from "strategic imperatives" was $7.8 billion in the latest quarter, accounting for 42 per cent of total revenue, up from 37 per cent a year earlier.

Shares of IBM, whose revenue has now fallen for 20 quarters in a row, were down 3.7 per cent at $163.71 in trading after the bell on Tuesday.

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